Let's assume the yield curve flattens all the way to a "flat term structure" of 7%. The rate is Now, a bank has Assets consisting of mortgages, durable goods loans, and other consumer loans, and together these assets have duration of 15 years. This same bank has liabilities of savings deposits, and certificates of deposit having average duration of 5 years.  

This bank has a D/E ratio of 9.0 and total book value of Assets of $750 million, fair market value.

1. 1) What is the book value of Liabilities?
2. 
   
3. 2) What is the book value of Equity?

Answer rating: 100% (QA)

The duration gap is the difference between the duration of assets and liabilities In this case the d... View the full answer